Dive Brief:
- Destination Maternity is exploring a possible sale or merger in addition to "value-enhancing initiatives" should the company remain independent. The latter includes capital structure "optimization," as well as the sale or disposition of some business assets, the company said Tuesday. No timeline was set for the strategic review.
- The announcement comes as second quarter sales fell nearly 12% year over year to $84.9 million. Driving the decline were 61 store closures in Q2 and a 10.5% drop in comparable sales.
- The company's expenses fell during the quarter, partly through employee layoffs expected to save up to $4.5 million, executives said on a call with analysts. Margins fell too, however, by 0.3%. Destination Maternity posted $2.2 million operating loss, a narrowing of more than 20% compared to last year's operating loss. The company also narrowed its net loss to $3.5 million from $4 million last year.
Dive Insight:
Board member Lisa Gavales, who currently serves in the retailer's "Office of the CEO" while it looks to replace Marla Ryan, said on a conference call that the company's Q2 results "illustrate the challenges that persist across the business."
It also helped prompt the strategic review announced along with the company's dismal performance for the year so far. "While we continue to believe we have a compelling business and remain focused on delivering long-term profitable growth, challenges persist and more needs to be done," CFO Dave Helkey said in a statement.
The sales decline was so steep that even cuts to the retailer's cost structure couldn't generate incremental profit. Not only did brick-and-mortar comps fall with decreased foot traffic, but Destination Maternity's e-commerce comps fell as well, thereby leading it to reorganize its leadership team, Gavales said Tuesday.
The company has been struggling with sales losses for years now. As it tries to adjust, it has closed 177 total stores since last August, but closures and layoffs have not been enough to stabilize the company's finances. The retailer's Q1 performance also showed significant deterioration in the company's finances.
Along with the financial turmoil, the retailer has suffered executive turnover as well in recent years. Former CEO Marla Ryan left this summer "by mutual agreement with the Board," after signing a three-year contract in November to stay in the role. The CEO Ryan succeeded lasted just months as well.
Investors lost their patience some time ago, with activists launching public attacks on management last year followed by a proxy war. Changes to leadership since then haven't resulted in a turnaround, only more chaos and the shrinking of the retailer's sales base.
